The Estate Trustee During Litigation

Transcription

1 The Estate Trustee During Litigation Justin W. de Vries de VRIES LITIGATION LLP Offices in Toronto and Oakville or Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 1

2 The Role of An ETDL - Ontario Temporary position Similar role to ET Managing assets and overseeing administration until litigation has ended (e.g. pay taxes) Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 2

3 ETDL can ease the administration of the estate Protect and hold assets (no distributions) Allow the parties to focus on the litigation Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 3

4 ETDL most often appointed in a will challenge Lack of testamentary capacity Undue influence Lack of knowledge and approval Due execution Fraud Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 4

5 ETDL traditionally not required: Dependant support claim Spousal election under the FLA Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 5

6 In Ontario, role has expanded ETDL often appointed if there is litigation between parties with a financial interest Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 6

7 Why? Benefits of neutral party administering the estate Estate administered without delay or infighting Litigation takes place on the sidelines Ontario courts are willing to appoint an ETDL in nonwill challenge proceedings Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 7

8 A word of caution Not necessarily automatic (court or parties may look for alternatives) ETDL can be expensive and overly cautious/ponderous Consider who should act as an ETDL institutional trustee or lawyer or accountant? Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 8

9 Who Should Act as ETDL ETDL has wide-ranging powers Know them/use them Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 9

10 ETDL can be an ally in advancing a party s cause (production of documents, preserving assets) and promoting settlement Preserving assets and prying information from a reluctant party Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 10

11 Section 28 of the Estates Act Pending an action touching the validity of the will of a deceased person, or for obtaining, recalling or revoking any probate or grant of administration, the Superior Court of Justice has jurisdiction to grant administration in the case of intestacy and may appoint an administrator of the property of the deceased person, and the administrator so appointed has all the rights and powers of a general administrator, other than the right of distributing the residue of the property, and every such administrator is subject to the immediate control and direction of the court, and the court may direct that such administrator shall receive out of the property of the deceased such reasonable remuneration as the court considers proper. Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 11

12 Order appointing ETDL can set out specific powers and responsibilities (limited mandate?) Identify certain assets to be recovered/sold Set remuneration (usually a conversation with counsel; fees can be capped) Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 12

13 Section 28 makes clear appointment of an ETDL within discretion of court ETDL is an officer of the court Should be paid, subject to court oversight (passing of accounts should be an option) Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 13

14 Rule 75.06(3)(f) of Ontario s Rules of Civil Procedure On an application or motion for directions, the court may direct that an estate trustee be appointed during litigation, and file such security as the court directs No security for trust companies/waived for individuals (somewhat unusual) Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 14

15 ETDL should regularly report to parties Build reporting requirements into court order ETDL must be transparent in its actions Remain neutral: not take sides Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 15

16 Re Bazos (1964) Seminal case in Ontario Court of Appeal used broad, sweeping language When appointing an ETDL, justice not only had to be done, but seen to be done Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 16

17 Party challenging a will should not be appointed ETDL Not an absolute rule, but only departed from if there are good reasons to do so (i.e. a strong case made out) Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 17

18 A third party, unconnected to the proceeding is the best person to be appointed as ETDL Other parties would have to consent to an interested party acting as ETDL Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 18

19 It is well to remember that justice must not only be done but must also appear to be done, and we think it would be a very unusual situation where one of the parties to an issue such as was here ordered would be appointed administrator pendente lite [ETDL]. That it should not be done in this case is crystal clear; apparently one of the witnesses to the disputed Will was a director of the Guarantee Trust Co [the proposed ETDL]. Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 19

20 Court can be flexible depending on the parties and their approach to the dispute Parties can agree to an interested party albeit without distributions Freeze order may be appropriate if estate is straightforward Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 20

21 Re Groner Estate (1994) Contested motion to appoint TD as ETDL Justice Greer appointed TD why? Magnitude of assets Respondent s law firm in potential conflict of interest (drafted challenged will) Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 21

22 Estate required immediate services of an experienced neutral party to: Take control of the estate Prepare a list of assets and values Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 22

23 ETDL an officer of the court No mere nominee or agent of the parties Can apply for directions at any time Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 23

24 ETDL in legal position to: Receive and hold assets Pay debts Preserve assets Make proper inquiries into assets Trace assets Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 24

25 ETDL may be avoided if: Assets are well managed and modest Estate trustee not a beneficiary or only receiving minor bequest Not necessarily involved in the litigation Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 25

26 Re Lloyd (1979) Two privately held corporations One owned significant real estate holdings The other was a highly specialized hat manufacturer that required considerable expertise to operate Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 26

27 Court declined to appoint an ETDL ETDL not necessary to preserve assets or to prevent waste, mismanagement, or malfeasance ETDL will only be appointed if necessary Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 27

28 Application to appoint ETDL could have been avoided if: Applicant had been kept aware of status of companies How companies were being managed and continued to be profitable Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 28

29 Salisbury v. Dell (1993) Court appointed individual No interest in estate or outcome of litigation Modest size of estate did not warrant appointment of an ETDL Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 29

30 Hansen v. Hurley (1994) Murder in Mexico Will challenge Dispute over who should be appointed ETDL Court appointed two minor beneficiaries named as executors in challenged will why? Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 30

31 No other ETDL proposed Court was concerned that the estate would have no one in control, [a] most undesirable situation Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 31

32 Proposed ETDLs had already begun to administer estate as named executors Continuity of administration Compensation less than institutional trustee Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 32

33 Re McArthur Estate (1990) Court refused to appoint an ETDL Executor named in the will had already begun to act No issue with administration Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 33

34 Clandestine attempt to remove executor without any proper evidentiary footing Court declined to exercise its discretion ETDL will not be appointed on a whim or for no good reason Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 34

35 Dempster v. Dempster Estate (2008) Father (Bruce) and son (James) dispute over a cottage island gift by Bruce s father/james grandfather Bruce asked court to remove James as estate trustee Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 35

36 [there] is a significant concern as to the cost of an independent trustee. The island is the only significant asset of the estate. By the terms of the will, James Dempster stands to inherit the island entirely. Augmented estate and litigation costs could well have the effect of substantially reducing the value of what would otherwise be his. If the result of the dispute is vindication of Frank Dempster s sound and autonomous intention to benefit his grandson [James], there is potential that his gift will nevertheless be defeated by the cost of Bruce Dempster s [father] sour grapes. Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 36

37 James was not removed as executor James living on island Had reasons to maintain island No allegations of mismanagement Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 37

38 Court decided to appoint co-executor with James more of a watching brief Court relied on Trustee Act to appoint coexecutor (unorthodox) Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 38

39 Court placed limitations on the rights of James to administer the estate without co-executor s say-so or court order Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 39

40 For example, James could not incur estate liabilities or make distributions without coexecutor agreeing or court approval Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 40

41 Buswa V. Canzoneri (2010) Dispute as to how to properly dispose of deceased s remains Three of the deceased s sisters applied to be appointed ETDL for the limited purpose of disposing of remains Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 41

42 Angel Canzoneri alleged she was daughter of the deceased and sought to be appointed ETDL Sisters wanted a traditional First Nation burial ceremony Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 42

43 Daughter claimed her father was not religious and wanted to be cremated Court appointed natural daughter as she was next of kin (she therefore stood in priority to deceased s sisters) Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 43

44 As ETDL, daughter could deal with the deceased s body as she saw fit Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 44

45 McColl v. McColl (2013) Dependant support claim brought by first wife for herself and 16 year-old autistic son Second wife named as estate trustee under will Court appointed an ETDL why? To ascertain real value of assets Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 45

46 ETDL could determine real value of assets How assets should be administered Second wife in a position of conflict in litigation Second wife had no business experience to run companies Second wife failed to comply with previous court orders Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 46

47 Justice Greer: Decision to refuse appointment [of an ETDL] should only be exercised in the clearest of cases Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 47

48 Court s discretion to appoint an ETDL will be exercised where there are assets that are required to be held, preserved or otherwise dealt with, and debts to be paid (i.e. most of the time) Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 48

49 In some simple estates, where the assets are all in liquid form and not much needs to be done, a court may decide an ETDL is not necessary Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 49

50 Bryant v. Bryant Estate (2015) Highly contentious estate dispute Beneficiary sought to remove ETDL Dishonesty Favouring one beneficiary over another Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 50

51 ETDL acting in a conflict of interest Refusing to provide information to the beneficiaries General incompetence Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 51

52 Moving party (beneficiary) wanted ETDL to pay motion costs personally on a substantial indemnity basis Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 52

53 Court rejected allegations against ETDL ETDL was originally appointed on consent and order should not be lightly interfered with Personal hostility not sufficient to justify ETDL removal Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 53

54 ETDL had acted in best interests of the estate and beneficiaries under almost intolerable conditions Nothing warranted ETDL s removal: Actions did not endanger trust property Acted fairly Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 54

55 ETDL entitled to his full indemnity costs Allegations unfounded and unjustified Paid by moving parties; estate should not be penalized Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 55

56 Termination of Role ETDL role ends when litigation ends ETDL must transfer assets (to estate trustee?) No special order required Original order often silent on ETDL s role ending Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 56

57 In reality, an Order should state: Terms of transfers of estate assets Who should act as executor Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 57

58 Whether ETDL should: Distribute estate Apply for probate Pass its accounts Address orderly winding-up of estate and loose-ends Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 58

59 Court may balk at ETDL distributing estate assets without probate (tax avoidance) Passing of accounts may be redundant if ETDL has reported on administration throughout, including its charges Parties wish to avoid additional costs Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 59

60 ETDL should insist upon a release from the parties if no formal passing of accounts Court order terminating role of ETDL may exonerate ETDL from liability If in doubt, ETDL should pass his/her accounts Society of Trust and Estate Practitioners (Canada) 18 th National Conference Page 60

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